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It goes without saying that the actions of the Federal Reserve have the single greatest influence on interest rates. These Fed influences encompass not only its formal statements, but also comments made by the chairperson and other Fed officials.

The Fed released its most recent statement on March 19, outlining a further $10 billion reduction in bond purchases. This marks the third reduction following the $10 billion reductions in December and January. Overall, the Fed has reduced its monthly bond purchases to $55 billion per month. At the current rate of tapering, monthly bond purchases will reach zero by either the October or December Fed meeting.

The continued tapering did not come as a surprise. What was unexpected is that Fed Chairperson Janet Yellen and the Federal Open Market Committee (FOMC) eliminated the longstanding 6.5% unemployment target for raising interest rates, also known as the "Evans Rule." The Fed never explicitly stated it would raise interest rates once unemployment fell below 6.5%, but it was discussed and used as a warning to be more vigilant of inflation at that level. The FOMC tried to make up for the removal of the Evans Rule by emphasizing what it called "a wide range of information" that is available in making policy decisions.

The FOMC said that going forward it will monitor "readings on financial developments." This description is very vague and seems to be a move away from the transparency advocated by former Fed Chairman Ben Bernanke.

This unexpected move away from the Fed's existing indicators under Bernanke's chairmanship is marked by the substitution of undefined information versus clearly defined statistics in making policy. Markets have grown used to milestone markers dictating their next move. It's simple enough to understand a concept such as the Evans Rule-we keep our eyes open for that 6.5% unemployment rate tick. How though do we set our watches for a 'financial development'?

The markets seemed to struggle with the same question. With the Fed's latest announcement, U.S. equity markets fell sharply.

The FOMC participants raised their short-term interest rate projections from 0.75% by the end of 2015 to 1.0%. Though the increase wasn't very large, it was a move the markets did not embrace judging by the ensuing sell off in equities. The 2016 forecast jumped from 1.75% to 2.25%. This also seems to indicate a change in the FOMC's thinking.

Immediately following the announcement, Yellen held her first press conference as the Fed chairperson. She emphasized that dropping the 6.5% unemployment threshold did not indicate any change in the committee's policy intentions, but was not clear at all in her remarks regarding just how long rates will stay low after bond purchases end. Investors immediately reacted to the increase in interest rate forecasts.

Yellen commented--in vague terms--that the federal funds rate might start to rise approximately six months after the Fed ends its bond purchase program. As mentioned earlier, the bond purchase program could end as soon as October 2014.

The markets' uncertainty is understandable. A six month time frame in combination with the FOMC's anticipated bond purchase end dates means the first possible interest rate increase would be in April or June 2015. This is considerably sooner than the December 2015 estimate previously put forth by the FOMC.

Following Yellen's comments, yields on two-year Treasury Notes climbed as much as 10 basis points--the most since June 2011. With the increase of the FOMC's forecast of interest rates and the potential acceleration of the first interest rate increase, the reaction by U.S. Treasurys seems justified. The jump can clearly be seen on the chart below.

Regardless of how abstract the markers may be, we can expect interest rates to rise. That doesn't mean a spike overnight. More likely we will see this increase occur at a not-so-alarming rate.

How might higher rates affect the markets? The short-to-intermediate portions of the yield curve will be expected to increase. These maturities are also subject to greater volatility as speculation continues over the FOMC's true intentions.

The U.S. dollar would most likely become stronger, particularly with bond buying in Japan and the European Central Bank considering it as well. A stronger dollar could have a negative effect on U.S. corporate earnings by changing existing currency exchange rates. Earnings are precisely what this market wants to see to keep appreciating.